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Apple And Qualcomm: The Drama Continues

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Apple And Qualcomm: The Drama Continues
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QUALCOMM, Inc. (NASDAQ: QCOM) has thrown the latest punch in its ongoing battle with Apple Inc. (NASDAQ: AAPL).

Just months after Apple sued Qualcomm for $1 billion, claiming the company has been “charging royalties for technologies they have nothing to do with,” Qualcomm has sued Apple claiming the iPhone maker is infringing on six patents.

Qualcomm has asked U.S. trade regulators to block iPhone imports. "Apple continues to use Qualcomm's technology while refusing to pay for it," Don Rosenberg, executive vice president and general counsel of Qualcomm said.

Apple shares showed little reaction to the news in early Friday trading, but JPMorgan analyst Rod Hall sees significant exposure for investors.

“Overall, we believe that ~17% of total iPhone volume is exposed to the ITC complaint filed by Qualcomm,” Hall wrote on Friday. He also estimated that the dispute will likely take up to 18 months to resolve.

Related Link: Wall Street Might Still Be Underestimating The Impact Of Qualcomm's Spat With Apple

Qualcomm was forced to cut its 2017 guidance earlier this year due to Apple suspending its royalty payments to Qualcomm “until the correct amount can be determined by the court.”

Apple and Qualcomm’s five-year spat appears to be coming to a head prior to the launch of Apple’s highly-anticipated 10-year anniversary iPhone 8 later this year.

Not only is Qualcomm at risk of losing royalty revenue, Bernstein analyst Stacy Rasgon recently said it's also at risk of losing share to competitors in the 2018 iPhone.

“There remain other risks and issues including potential for further design losses in next year's iPhone as competitors bring up CDMA, $1B+ in stock comp should one choose to account for it, ~$11/share in net cash shortly becoming ~$16/share in net debt, and increasing likelihood that NXPI will cost more given activist involvement, strong results, and sector performance that has fully offset the deal premium,” Rasgon wrote.

Wells Fargo analyst David Wong said Qualcomm investors shouldn't be too concerned over the latest developments.

"While we believe there is substantial legal risk for Qualcomm that investors should recognize, Qualcomm has had numerous customer and regulatory disputes through its life as a public company, and the company has managed to generate profits and cash despite this," Wong wrote Friday.

So far in 2017, Apple has certainly had the upper hand in the market. Apple shares are up 24.1 percent in 2017, while Qualcomm shares are down 15.7 percent on the year.

Latest Ratings for AAPL

DateFirmActionFromTo
Oct 2018WedbushInitiates Coverage OnOutperform
Sep 2018NomuraMaintainsNeutralNeutral
Sep 2018JP MorganInitiates Coverage OnOverweight

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